market

Margret Thatcher boiled it down to its essence years ago – “the problem with socialism is you eventually run out of other people’s money”.

Janet Daley, writing the the UK’s Telegraph, hits a proverbial homerun with her macro look at the “situation” in which both the US and Europe find them selves. It’s not a pretty picture, but quite accurate. Per Daley, what we’re going through right now, at least on the European side of the pond, isn’t some esoteric debate about a crisis that will eventually be solved, it is the predictable endgame of the premise that a capitalist system can support an ever expanding social welfare state. Per Daley, the answer seems to be a pretty obvious “no”.

Her reasoning for her conclusion is painful for those who want to believe that such a premise is actually attainable. Let’s take a look:

The truly fundamental question that is at the heart of the disaster toward which we are racing is being debated only in America: is it possible for a free market economy to support a democratic socialist society? On this side of the Atlantic, the model of a national welfare system with comprehensive entitlements, which is paid for by the wealth created through capitalist endeavour, has been accepted (even by parties of the centre-Right) as the essence of post-war political enlightenment.

This was the heaven on earth for which liberal democracy had been striving: a system of wealth redistribution that was merciful but not Marxist, and a guarantee of lifelong economic and social security for everyone that did not involve totalitarian government. This was the ideal the European Union was designed to entrench. It was the dream of Blairism, which adopted it as a replacement for the state socialism of Old Labour. And it is the aspiration of President Obama and his liberal Democrats, who want the United States to become a European-style social democracy.

The left in this country can deny this all they wish, but Daley succinctly lays out the Democrat’s “ideal” in plain English. Any attempt to deny that is simply counter-factual. European-style social democracy has been the ideal of Democrats for years. And the fight over entitlements makes the point. The difference between the US and Europe is two-fold. We thankfully began pursuing that ideal much later than did Europe and the basic difference in make up between Europe and the US is the primary reason:

But the US has a very different historical experience from European countries, with their accretions of national remorse and class guilt: it has a far stronger and more resilient belief in the moral value of liberty and the dangers of state power. This is a political as much as an economic crisis, but not for the reasons that Mr Obama believes. The ruckus that nearly paralysed the US economy last week, and led to the loss of its AAA rating from Standard & Poor’s, arose from a confrontation over the most basic principles of American life.

Contrary to what the Obama Democrats claimed, the face-off in Congress did not mean that the nation’s politics were “dysfunctional”. The politics of the US were functioning precisely as the Founding Fathers intended: the legislature was acting as a check on the power of the executive.

Precisely. None other than Cokie Roberts noted the “problem” we have here that Europe doesn’t on one of the Sunday shows.

That “problem” and a different but eroding view of the role of government. And all though we’re on the precipice, that “problem” is all that have kept us from sliding into the pit Europe has dug for itself over the decades.

What is going on now is not the fault of the Tea Party, no matter how hard the spinners like David Axlerod and John Kerry attempt to make it so. In fact, the Tea Party contingent actually represents that fundamental but eroding view of the role of government and the “problem” Cokie Roberts refers too.

The Tea Party faction within the Republican party was demanding that, before any further steps were taken, there must be a debate about where all this was going. They had seen the future toward which they were being pushed, and it didn’t work. They were convinced that the entitlement culture and benefits programmes which the Democrats were determined to preserve and extend with tax rises could only lead to the diminution of that robust economic freedom that had created the American historical miracle.

And, again contrary to prevailing wisdom, their view is not naive and parochial: it is corroborated by the European experience. By rights, it should be Europe that is immersed in this debate, but its leaders are so steeped in the sacred texts of social democracy that they cannot admit the force of the contradictions which they are now hopelessly trying to evade.

Facts are a stubborn thing. They have a tendency to destroy beliefs and perceptions. The belief and perception of the “premise” that a capitalist system could forever support an expanding social welfare state is in the throes of being dashed upon the rocks of economic reality. That’s a harsh thing to see if it is your belief. And we all know the various stages of grief. Right now, the true believers are in the “denial” stage. The only one’s dealing in reality are the Tea Partiers. Like the canary in the coal mine, they’ve alerted us to a mortal danger that has been acted out in Europe and is now collapsing from within. They’ve accurately pointed to our problem and how it will lead to the very same conclusion. They’re demanding we stop pursuing that reckless and doomed “ideal” and return to our fundamental governing ideals – limited government, less costly government, less intrusive government.

And, of course, the true believers in the social welfare state, those who’ve gotten us into this mess and want to deny the problem and continue the pursuit of their destructive ideal are resisting with every fiber of their being and ironically, calling the Tea Partiers the radicals.

What the left can’t control though is the example of our future that Europe provides, like it or not:

No, it is not just the preposterousness of the euro project that is being exposed. (Let’s merge the currencies of lots of countries with wildly differing economic conditions and lock them all into the interest rate of the most successful. What could possibly go wrong?)

Also collapsing before our eyes is the lodestone of the Christian Socialist doctrine that has underpinned the EU’s political philosophy: the idea that a capitalist economy can support an ever-expanding socialist welfare state.

Phenomenally, while the problem becomes more and more undeniable, the solutions being considered are precisely the opposite of what is needed.

As the EU leadership is (almost) admitting now, the next step to ensure the survival of the world as we know it will involve moving toward a command economy, in which individual countries and their electorates will lose significant degrees of freedom and self-determination.

That’s right – those who, through the years, have managed to put us in this situation now think they need more control, intrusion and command, not less. Those who’ve managed, through their policies and ideology, to wreck the best economies on earth, want more power. They won’t let go of the belief, despite the reality. Take for example the Democrats almost single focus on higher taxes. They still believe they can have their cake (or your cake actually) and eat it too.

We have arrived at the endgame of what was an untenable doctrine: to pay for the kind of entitlements that populations have been led to expect by their politicians, the wealth-creating sector has to be taxed to a degree that makes it almost impossible for it to create the wealth that is needed to pay for the entitlements that populations have been led to expect, etc, etc.

The only way that state benefit programmes could be extended in the ways that are forecast for Europe’s ageing population would be by government seizing all the levers of the economy and producing as much (externally) worthless currency as was needed – in the manner of the old Soviet Union.

That is the problem. So profound is its challenge to the received wisdom of postwar Western democratic life that it is unutterable in the EU circles in which the crucial decisions are being made – or rather, not being made.

Daley speaks of the EU, but listen carefully to the left and the Democrats in this country. They’re offering exactly the same “solutions” and this administration is attempting that solution by executive fiat through regulation. Look at the health care grab as well. We’re headed down exactly the same road Europe has traveled and the left in this country is telling everyone to ignore the road signs telling us so.

The Tea Party has figured that out as have many on the right. But the left wants to go right on pretending it isn’t so:

We have been pretending – with ever more manic protestations – that this could go on for ever. Even when it became clear that European state pensions (and the US social security system) were gigantic Ponzi schemes in which the present beneficiaries were spending the money of the current generation of contributors, and that health provision was creating impossible demands on tax revenue, and that benefit dependency was becoming a substitute for wealth-creating employment, the lesson would not be learnt. We have been living on tick and wishful thinking.

Couldn’t agree more. We ‘radicals’ who’ve been saying this for years have been proven to be factually correct. It is an inconvenient truth the left doesn’t want to either accept or admit. So the still hold on to the belief that if they could only make the ‘rich’ pay their fair share, they’d find utopia still achievable. Reality, however, in the guise of the European experiment now imploding, already provides proof their theory has no basis in truth.

So what is the solution? Well in the short term Daley prescribes some bitter but necessary medicine:

So what are the most important truths we should be addressing if we are to avert – or survive – the looming catastrophe? Raising retirement ages across Europe (not just in Greece) is imperative, as is raising thresholds for out-of-work benefit entitlements.

Lowering the tax burden for both wealth-creators and consumers is essential. In Britain, finding private sources of revenue for health care is a matter of urgency.

More importantly though:

The hardest obstacle to overcome will be the idea that anyone who challenges the prevailing consensus of the past 50 years is irrational and irresponsible. That is what is being said about the Tea Partiers. In fact, what is irrational and irresponsible is the assumption that we can go on as we are.

Dead on. Fundamental change. Backing government out of our lives. And we’re dead meat if we don’t heed and act on the fact that the social welfare state is a zombie (but doesn’t yet know it) and we need to finally and irrevocably kill it, never let it rise again, and return to the ways which made us great and are enshrined in our founding documents.

Global stock markets sank again Monday as worries over the downgrade of U.S. debt outweighed relief at a European Central Bank pledge to buy up Italian and Spanish bonds to help the two countries avoid devastating defaults.

European markets shed their early momentum and losses were heavy in Asia. Most stocks were trading sharply lower amid mounting fears over the opening of U.S. markets, when traders will have their first chance to respond to Standard & Poor’s momentous decision to lower its triple A rating for the U.S.

"The reverberations from S&P’s downgrade are still being felt across the globe," said David Jones, chief market strategist at IG Index.

The European Central Bank’s buy of Italian and Spanish bonds – two Euro countries in deep financial trouble – at first seemed to allay the expected downturn. However that was later reversed and global markets saw a sharp downturn.

At this time one can only speculate what will happen in US markets, but the global sell off is not a good sign.

Monday’s trading came after one of the worst market weeks since the collapse of U.S. investment bank Lehman Brothers in 2008 – around $2.5 trillion was wiped off global stocks last week.

In Europe, Britain’s FTSE 100 index of leading British shares was down 1.7 percent at 5,157 while France’s CAC-40 fell 1.6 percent to 3,227. Germany’s DAX was 2.3 percent lower at 6,091.

Sentiment in Europe was hurt by an expected sell-off at the U.S. open – Dow futures were down 1.8 percent at 11,196 while the broader Standard & Poor’s 500 futures fell 2.1 percent to 1,173.

The one bright spot in an otherwise dismal picture is the US Treasuries market. And “bright spot” is a relative term considering the rest of the markets:

So far, the S&P downgrade doesn’t seem to be having too much of an impact on U.S. government bonds, known as Treasuries. The worry has been that the downgrade would prompt investors to demand more, but the yield on ten-year Treasuries has actually fallen.

"Early market reactions suggest that the treasury market will remain well supported," said Jane Foley, an analyst at Rabobank International. "Even though there may be no sharp sell-off in treasuries this week, S&P’s decision should at least provide a signal to the U.S. government that it may be foolhardy to continue to take its creditors for granted indefinitely."

Two points. One – yes, it should provide such a signal. However, if that signal isn’t acted upon and acted upon swiftly, then two – the treasury market will not remain well supported. Interest rates will rise on demand by investors and servicing our debt will cost more and more.

To add more fuel to the fire, there’s this:

"Investors are concerned about a rising risk of global recession, credit downgrades especially now in the eurozone, such as France, the threat of a major bank bust and a global liquidity trap as investors stay in cash," said Neil MacKinnon, global macro strategist at VTB Capital.

So much to watch and consider. While this may not be the most interesting news to read about, none is more vital. The problems in both Europe and the US have a far reaching effect on global markets. And they will have an effect, at some point, on everyone’s wallet. We’re in uncharted territory here, and unfortunately, there are no easy and painless ways to solve these problems.

We are currently in the middle of a war against carbon based energy being waged by the current administration to do precisely what Obama promised as a candidate. Raise energy prices. The method is irrelevant to him. No “cap and trade”? Fine. He’ll find other ways. And that’s exactly what is happening as we speak.

For instance, via the EPA. Background – apparently the EPA released its new proposed “Cross-state Rule” on July 7th – a couple of weeks ago – after previously sending it around for comment. The rule is scheduled to go into effect on January 1st of 2012. It is 1,323 pages long. It seems they threw a new requirement into the mix that was not in the original proposed rule and that none of the energy generating owners knew was coming. It would require many to shut down. The Electric Reliability Coalition of Texas picks it up from there:

ERCOT’s May11 report to the Public Utility Commission on the impact of the proposed environmental regulations did not address the impact of SO2 restrictions on coal plants in ERCOT because these restrictions on Texas were not included as part of the EPA’s earlier rule proposal. We have not had time to fully analyze the entire 1,323-page Cross-State Rule released July 7 or to communicate with the generation owners regarding what their intentions will be. However, initial implications are that the SO2 requirements for Texas added at the last stage of the rule development will have a significant impact on coal generation, which provided 40 percent of the electricity consumed in ERCOT in 2010.

Our concern is that the timing of the new requirements – effective Jan. 1, 2012 – is unreasonable because it does not allow enough time to implement operational responses to ensure reliability. We fear that many of the coal plants in ERCOT will be forced to limit or shut down operations in order to maintain compliance with the new rule, possibly leading to inadequate operating reserve margins with insufficient time to reliably retrofit existing generation or build new, replacement generation.

So the EPA pushes out a new reg with drastic limits on SO2 that were not in the original draft of the regulation. If left unchanged it will, per ERCOT, cause many coal-fired plants to shut down or limit their generation. And with 40% of electricity generated by coal in Texas, that will be a significant loss of generating power. Texas will then have to buy what it can’t generate itself and consumer prices will do precisely what candidate Obama hoped – and planned- for them to do. Now think of this and its effect across the country.

Of course that isn’t the only facet of the war on carbon based energy being waged by this administration. Oil and gas also have seen what has now become to be called a “permatorium” on offshore drilling enforced by the administration. Using the Deepwater Horizon blowout as its excuse, the administration has slowed permitting to a crawl and is dragging its feet as slowly as possible to, one suspects, fulfill Obama’s desire.

Study after study have shown that opening the process back up to at least the speed in which it was previous to the accident could create hundreds of thousands of jobs and billions in revenue. A real step toward jumpstarting the economy. Just yesterday another study made that very point:

Faster permitting of offshore oil and gas projects could create nearly 230,000 new jobs in 2012 and boost the economy by $44 billion, including a surge in tax revenue, according to an industry-funded study released Thursday.

The report by IHS CERA said job growth would extend beyond the Gulf Coast states, boosting employment indirectly as far away as California, New York, Florida, Illinois and Georgia.

The study, funded by the Gulf Economic Survival Team, a group of largely Louisiana-based energy and business interests, looks at data on the pace of permitting by the Bureau of Ocean Energy Management Regulation and Enforcement through April 30.

That’s six months after the end of a federal moratorium on offshore drilling, which the government imposed after last year’s Deepwater Horizon accident killed 11 workers and triggered a 5 million-barrel oil spill.

Permit approvals take 95 percent longer now than before the spill, the study says.

You can read the study for yourself here [pdf]. But that last number is telling. There’s no reason for it. The industry has stepped up and raised the bar significantly on safety. The numbers quoted in the study projecting jobs and revenue are for 2012. What administration concerned with jobs wouldn’t leap at such low hanging fruit? This one. Compared to historical trends, pending exploration plans are up by nearly 90%, approvals are down by 85% ,and the approval process has slowed from an average of 36 to 131 days.

As for WTI, inadequate pipeline infrastructure makes it difficult to get the stuff out of North America — and that depresses its price, especially when demand is also weak. Its problems could also get worse before they get better. Output from North America is growing faster than expected. Canadian producers, for example, recently said output will grow from 2.7 million barrels a day to 3.4 million by 2014 and North Dakota production is surging. Meanwhile efforts to build new pipelines are mired in political controversy.

And they’ll remain mired in political controversy as long as this administration is in power. Slowly, but surely, a nation with huge energy resources is being strangled by a government and President who want to intentionally raise energy prices. Inadequate pipeline infrastructure means less product makes it to market. Less product in the market place means higher prices for what does make it there. Who pays? Consumers.

In September 2008 TransCanada applied to build a new pipeline — the Keystone XL — to bring diluted bitumen from the oil-rich tar sands of Alberta to thirsty American refineries on the Gulf Coast. It is hardly a radical proposal. Canadian crude has been flowing to the U.S. for decades. Another Canadian company — Enbridge — operates the Clipper pipeline across the Canadian border to Chicago. In July 2010 TransCanada began operating its Keystone pipeline from Alberta to Cushing, Oklahoma, which is a major storage and pricing depot…TransCanada estimates that building the pipeline will mean more than $20 billion — $13 billion from TransCanada itself — in investment and 13,000 new American jobs in construction and related manufacturing. The company also expects more than 118,000 "spin-off" jobs during the two years of construction. TransCanada says it has signed building contracts with four major U.S. unions. It projects that construction will generate $600 million in new state and local tax revenue and that over its life the pipeline will generate another $5.2 billion in property taxes. The Energy Policy Research Foundation in Washington estimates that by linking to the XL, oil producers in North Dakota’s Bakken region will enjoy efficiency gains of between $36.5 million and $146 million annually. Lower transport costs will mean savings for Gulf Coast refiners of $473 million annually if the pipeline meets conservative expectations of shipping 400,000 barrels per day.

Jobs and revenue (in addition to those previously cited in the study), there for the taking, and this administration sits and waits.

And of course, the newest controversy to hit the energy community as to be used as an excuse not to act has to do with hydraulic fracturing, or “fracking”. This is a 64 year old technology that has been used in the US on over a million wells. Suddenly, after news of massive new findings of natural gas in shale formations, it is a problem. And, of course, once it can be officially designated as a problem area, it must be investigated and regulated by the federal government. Complaints of ground water contamination have derailed the exploitation of these energy assets while the politicians argue, dither and delay. With those delays, again, go thousands upon thousands of potential jobs for Americans.

Name a reason for the sorry shape our economy is in and the government’s apparent refusal to aggressively move to help the energy industry create hundreds of thousands of jobs? Review that video again. It’s not long, but it plainly gives you the reason.

Deepak Chopra has, for some reason, come to be viewed as an intellectual by many. For the most part I don’t get it.

I’m reminded why when I read this Chopra statement on “The Mellow Jihadi” (disclaimer: The Mellow Jihadi does not agree with Chopra’s statement below):

Capitalism prevails as a system that once vied, supposedly, with Communism for world dominance, yet its deep flaws remain. Three come to mind. Capitalism discourages equal access to wealth, leading to enormous gaps between rich and poor. The free market lacks a conscience, giving rise to inequalities of education, health care, and job opportunities. Finally, capitalism if unchecked promotes corruption, both economic and political.

Capitalism is really given a bad rap here. And it is mostly in word usage. For instance “Capitalism discourages equal access to wealth”?

No. It doesn’t. What it requires is you earn your wealth, not have it handed to you. I.e. it pretty much encourages hard work, sacrifice and innovation and rewards it with wealth if all goes well and people like what you do and want to buy it. But the “deep flaw” here is you – the individual – actually have to initiate the action, do what is necessary to properly prepare yourself, work your butt off and hope you have done sufficient research and work to make all that pay off. But it certainly doesn’t “discourage” anyone from earning wealth, it just makes no guarantee that all will share equally in wealth. I see that as a feature, not a bug. The enormous gaps between rich and poor can usually be traced back to enormous gaps in preparation, work ethic, and ability. Btw, Mr. Chopra, in case you haven’t noticed, nature isn’t very good about “equality” either – when it comes to intelligence and ability. Is that a “flaw” or reality?

Chopra goes on to say that “the free market lacks a conscience”. Well that’s a straw man if ever I’ve seen one. It’s a bit like saying a rock has no feelings. A market operates without feelings, to include a conscience. But that doesn’t mean that the society or culture in which it operates can’t do what it feels is necessary to ameliorate certain “inequalities” if it so desires. That has zip to do with the market(s) other than they’re probably the fastest and best means to earn the wealth necessary to apply to the desired solutions. It simply doesn’t follow logically that the functioning of markets somehow inherently means inequality of education, health care and job opportunities. In fact history points to precisely the opposite being true.

Finally, Chopra, like many opponents of Capitalism, confuses the crony capitalism of today with actual Capitalism in its pure form. Crony capitalism does indeed “promote corruption, both economic and political”, and we’re living through that today. But Capitalism as a economic system doesn’t encourage either and, in fact, does its best to work around it via the market mechanisms that send the signals that encourage consumers to seek substitutes and/or alternatives when something doesn’t smell right. But when government interferes, sets artificial bars to entry, writes legislation that favors large businesses that support powerful politicians, that’s not Capitalism.

The Mellow Jihadi quotes Winston Churchill with one of the better rebuttals:

The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

One of the things economists watch to try to gauge the job market is how the temporary worker market is doing. Many times a rise in temp workers signals businesses are gearing up for more permanent hiring as the economy gains steam. The opposite is many times also true. And, unfortunately, it appears that this particular indicator isn’t giving us the warm fuzzy feeling we hoped it would:

Last month’s fall in the number of temporary workers could herald continued weakness in the job market.

The total number of temporary employees placed by staffing agencies dipped by 12,000 last month and is down 19,000 the past three months, the Bureau of Labor Statistics reported Friday.

Now perhaps 3 months can’t be considered a “trend”, but it is pretty darn close. And it parallels the news we’ve been getting about unemployment and the economy in general.

Temporary workers, however, could be the most telling signal. The number of contingent workers started growing in fall 2009, about six months before the broader job market began to emerge from the recession. From September 2009 to March, employers added nearly 500,000 temporary workers.

Roy Krause, CEO of SFN Group, a top staffing agency, says temporary placements for white-collar jobs in accounting, computers and legal remain strong. But those for lower-skilled light industrial, clerical and certain call-center jobs — which accounted for most of last year’s growth — have slowed. "They tend to be more sensitive to economic conditions," he says.

An example:

Chemical maker Arkema of Philadelphia employed about 150 temporary workers earlier this year. But it trimmed that total by about 50 in April and May as the weak economy prompted it to cut its 2011 forecast, Vice President Chris Giangrasso says. Arkema, he says, will likely not add this year to its permanent staff of about 2,500 in North America.

Key point – “weak economy”. He had enough growth last year to warrant hiring temp workers but not full time staff. Now he doesn’t even have enough business to warrant 2/3rds of the temps he hired and had to let them go.

That weakness in the economy continues to linger because, as we’ve noted any number of times, of the unsettled business climate. And that’s something government could do to help the situation – back off regulation, taxes and interference (*cough* NLRB/Boeing*cough*) and stay out of the way. It seems, though, that doing so is just not in this administration’s genes.

And so the negative indicators continue to pile up while the President of the United States and a complicit media attempt to make bad guys out of the GOP as they hold the line against economy crippling tax increases.

The Detroit News’s dogged David Shepardson has unearthed a study by one of world’s most respected automotive research firms that reveals that President Obama’s radical CAFE mandate that vehicles average — average! — 62 MPG by 2025 “could force vehicle prices up by nearly $10,000, reduce sales by 5.5 million vehicles annually, and eliminate more than 260,000 jobs.”

Shepardson is quoting from the Michigan-based Center for Automotive Research and the 260,000 job loss figure (consistent with past job losses from CAFE rule hikes) is another dent in White House’s propaganda that Green creates jobs.

The CAR study also reveals that Obama’s NHTSA and EPA have been gaming the figures when it comes to the cost of their new rules. The center’s study predicts it will cost between $3,744 and $9,790 per vehicle, while the agencies have low-balled the figure at $770 to $3,500 per vehicle.

The resulting costs would shrink the new-car market, with 5.5 million potential buyers disappearing (and manufacturing jobs with them) by 2025. That assumes that the auto fleet can even be built to meet such an absurd spec. Currently, no car — much less the average — meets 62 mpg. Indeed, only a handful of small vehicles meet the 35-mpg fleet-wide standard mandated in just five years.

Yes friends, just like the story I covered the other day, we have an administration which is more agenda driven than reality driven. We’re in the middle of a horrible recession, unemployment hasn’t really moved in over a year, the future doesn’t look much better, but the agenda to raise the price of energy (at the cost of jobs) and CAFE standards (at the cost of even more jobs) continues apace.

If you’ve ever wondered what market distortion and intrusion by government looks like, this is a good example. And this intrusion will cost hundreds of thousands of jobs and price many consumers out of the new car market (again, this administration sees that as a feature, not a bug).

The Senate voted 73-27 Thursday to kill a major tax break that benefits the ethanol industry, handing a political win to a bipartisan group of lawmakers that call the incentive needless and expensive.

The vote also could have ramifications on future votes to reduce the deficit. Much of the GOP conference supported Feinstein’s bill even though it does not include another tax break to offset the elimination of the ethanol tax credit.

[…]

Feinstein’s amendment to an economic development bill would quickly end the credit of 45 cents for each gallon of ethanol that fuel blenders mix into gasoline. The credit led to $5.4 billion in foregone revenue last year, according to the Government Accountability Office.

The amendment also ends the 54-cent per gallon import tariff that protects the domestic ethanol industry.

So we have actual bi-partisan agreement to end a subsidy and cut spending. Good. I’m also pleased with the fact that the tariff would be lifted. This means less market distortion and real signals sent by that market as to whether or not ethanol is a viable product in the energy sector. My guess is it is, however, not to the extent the subsidy made it. It may also have an effect of lowering food prices as less corn production will probably go to ethanol than is now.

As the article points out, the issue is “more regional than partisan”. That’s probably the case with many subsidies. Let’s carry this on by hunting down a few more of those types of subsidies and immediately end them. A few billion here, a few billion there and pretty soon you’re talking big money.

Ron Klain, former Chief of Staff for Joe Biden (and a Bloomberg View columnist) gives you a peek at the plan. Klain has a piece in Bloomberg where he puts the outline of what the administration needs to do to spin the car bailout properly if it hopes to make it a campaign positive. Klain’s suggestions are offered to form the basis of a narrative which will be polished and become a center-piece of the record of Barack Obama. The reason for beginning now is obviously an attempt to condition the public, which was very much against the bailout (and mostly remain so), to the supposed positive aspects of the takeover by government.

Of all the policy challenges I saw Obama tackle in my two years in the White House, none was more complex than turning around the U.S. auto industry. When the president took office, the industry was in free fall. Sales of cars and trucks, which had topped 17 million in 2006, fell to 10.6 million in 2009. Two of America’s three major automakers were insolvent, kept alive by weekly inflows of federal cash. U.S. automakers had an unsustainable cost structure, were badly trailing their foreign competitors in the production of fuel-efficient and electric vehicles, and seemed unable to make the hard choices needed to arrest their downward spiral.

The course the president chose was unexpected and risky. Most Americans remember that the administration decided to "bail out" the car companies — and indeed, the president did extend more loans and support to the industry. But he attached to the aid a series of controversial and painful conditions that ended business as usual in Detroit.

Call it “gutsy call II” if you will, but in reality, it is far from the picture that Klain ends up painting. Both the car companies were headed toward bankruptcy – a financial condition they had earned by their poor practices and sellouts to unions. Obama’s bailouts certainly ended “business as usual” for those two companies but not in a positive way.

One of the consistent memes is that had Obama not acted, GM and Chrysler would have gotten the equivalent of a death sentence by having to go into bankruptcy. By death sentence I mean the administration and its bailout supporters imply millions would have been thrown out of work and those two companies would have forever disappeared.

First, in the event of a bankruptcy, you don’t burn down the factories, erase all the source code on all the hard disks, make it illegal to use the brand name Chevrolet, and execute all of the employees. Others take ownership of the assets, and the employees go on with their lives. Some of these assets will be put to use generating revenues, profits, and taxes, and some of these former employees will get jobs or start businesses, and generate revenues, profits, and taxes. In order to measure the effect of the bailout over, say, five or ten years, you have to compare the actual taxes collected to what would happened over this same period in the counterfactual case where the bankruptcy was allowed to proceed. What owners would have bought the factories and IP assets, and what would they have done with them? What businesses would the former employees have started? Who would have moved to Arizona and retired? What new industry clusters will evolve in Arizona because of this transfer of people?

And what would have come out of the bankruptcy? Leaner companies better equipped to address the market and turn a profit. What wouldn’t have come out of the bankruptcy are the level of union pensions and benefits the administration preserved. Obama, through his bailout and modified bankruptcy made sure those were weren’t destroyed. Consequently you have pretty much the same conditions that existed prior to the bailout still in existence today with the added twist of more union control.

GM, for instance, just before it announced it had “paid off” its government loans, lost 3.4 billion dollars. Hans Bader, of the Competitive Enterprise Institute destroys the myth of GM’s loan payback with an extensive investigation into the real story. It is a story of known falsehoods being tacitly approved by the White House and the Treasury Department because the administration was desperate for some good news at the time. The Chrysler loan payback, as I noted recently, is of the same stripe. More smoke and mirrors from the “transparent” administration.

But back to the bailouts and the reasons. The defense offered for the bailout is this:

The White House report said the money invested in GM and Chrysler ultimately saved the government tens of billions of dollars in direct and indirect costs, including the cost of unemployment insurance and lost tax receipts that the government would have incurred had the big Detroit auto makers collapsed.

Again, that assumes nothing comes out of any bankruptcy proceedings. Nothing. And, as Jim Manzi of NRO explains above, that’s simply not how it works. It is an assumption without any real world foundation. We’re talking a zero sum assumption by the administration where no assets are bought, no one goes back to work, everyone is unemployed and no one can find a job. That’s just not the way bankruptcies (or the real world) work.

Also:

Second, some of the profit GM makes today would have been made by other companies that picked up some of the slack if the company lost market share after a bankruptcy. They would pay taxes on these profits, and as far as government receipts are concerned, money is money. How would auto industry structure evolve over time given whatever changes happened to the assets currently owned by the legal entity GM, or the employees currently paid by it?

Anybody who tells you they can answer all of these questions reliably is full of it.

Indeed. Again, the White House and its cronies must push the black and white version of this to make it saleable. If they can’t make you believe in their “either/or” scenario, then they can’t sell the lie. They’re banking on a large degree of economic ignorance to sell this. But they know that if they rely on the fact and figures they’re going to end up on the wrong side of the argument. So Klain says, break out the smoke and mirrors once again – sell it on emotion:

First, tell the story with fewer numbers and more emotion; less prose and more poetry. Rescuing the auto industry isn’t just a matter of saving jobs and factories — it means preserving a uniquely American manufacturing tradition. Cars are more American than apple pie or hot dogs (which, unlike the automobile, were both invented in Europe). We couldn’t have won World War II without this "arsenal of democracy"; as Walter Reuther famously said, "England’s battles were won on the playing fields of Eton, but America’s were won on the assembly lines of Detroit." The president needs to jujitsu Republican critics who accuse him of failing to understand American exceptionalism by pointing out his success in saving this exceptionally American industry.

You have to love the fact that even Klain doesn’t believe his own nonsense, but has no problem advising the president to use it. Note too that Klain seems not to remember that one of the reasons that GM and Chrysler were on the ropes had to do with the American public choosing competitiveforeign cars over the American cars from those two companies (and with the VOLT, we see GM again in the same condition. But he feels if he wraps it all in emotions and not facts (a variation on “hope an change” that worked so well in 2008), they can fool enough voters into accepting the narrative or at least, not caring about it.

Second, equally emphasize the pain that was imposed as a condition of support, and the hard and unpopular choices the president made. It was a plan of “shared sacrifice,” in which executives were fired, workers lost jobs, benefits and pay were cut, and dealers were shut down. The story of the tough choices the president made along the way must be told to convince the public that this wasn’t a handout.

Of course, this plays into the part of the narrative in which you must believe their “either/or” scenario – that is had the government not acted, millions of jobs would have just vaporized. Of course, what Klain describes above would most likely have been the result of normal bankruptcy proceedings minus the $50 plus billion government money injected into GM. They don’t what that known though. And, naturally, they don’t want any speculation about what would have emerged, how many jobs would that would have entailed, etc.

If you start down that road and use the history of bankruptcies and the emergence of companies from that situation as a basis, you’ll have a very difficult time swallowing the administration’s story. So avoid those facts at all costs and concentrate on “emotion” and “pain”.

Finally – Klain advises the White House to crank up the propaganda:

Third, let the people of the auto communities tell their own stories — encouraging homegrown viral videos and other uses of social and new media. This is a lesson I learned the hard way during the 18 months I was part of the White House team that struggled to explain the benefits of the Recovery Act. We used visits by the president and vice president, videos posted on WhiteHouse.gov, as well as endless statistics and charts and maps and graphics on Recovery.gov — and yet nothing got the job done. Finally, two ice-cream shop owners made an iPhone video that told the story better than we ever had, by showing how a single small business loan rippled across their area to create jobs in countless other businesses.

The White House needs a similar personal narrative to tell the auto rescue story, or it will risk being denied a return to Victory Lane in 2012.

So there is the plan – “emotion, pain and propaganda” – that Klain claims the administration should use to sell something that is about as un-American as the internment of Japanese/American civilians during WWII. The most interesting part, of course, is Klain understands that if they get into the specifics of this “deal” and the facts come out, it ends up looking like a very poor decision. And Klain knows that the opposition, once it finally settles on a candidate and its own narrative, is going to seize on this subject as a part of their attack on the Obama record.

He instinctively knows that any chance of blunting that, or making it a non-issue, requires that the administration’s narrative be out there actively being pushed now and that it has to be spun properly for it to work.

How do you counter this? With facts. And the facts are aplenty. There is no shortage of factual information that can gut these arguments and show them for what they are – emotion and propaganda. The opposition also has to use “American exceptionalism” in its proper way and point to the fact that the administration misusing “exceptionalism” in its version.

And that doesn’t even start to get to the really long-run considerations of what effects this has on rule of law and moral hazard (or if you want to make the case for the bailout, social solidarity and degradation of the working class).

One of the things America prides itself on is “rule of law”. That is a large part of our exceptionalism. We also founded a country that attempts to avoid the moral hazards that abound in this sort of a situation. We are and for the most part always have been a meritocracy. You get what you earn. We don’t buy into exceptions because they’re “too big to fail”. We understand that freedom means the freedom to fail and we don’t bail out –selectively- failures. We don’t throw good money after bad, and we certainly don’t expect our government to interfere in that process.

Now evidence is emerging that the damage wrought by the sour economy is more widespread than just a few careers led astray or postponed. Even for college graduates — the people who were most protected from the slings and arrows of recession — the outlook is rather bleak.

Employment rates for new college graduates have fallen sharply in the last two years, as have starting salaries for those who can find work. What’s more, only half of the jobs landed by these new graduates even require a college degree, reviving debates about whether higher education is “worth it” after all.

Of course in any economic downturn, especially in one which unemployment is high, this sort of thing is going to happen. According to the NY Times story, 22.4% of recent graduates are not working. 22% are not working in jobs that require a college degree. And, of course, of the 55.6% who are working in jobs requiring a degree, many are not working in their degree area. It also appears that the median salary has dropped significantly during the recession – after all, it’s a buyer’s market:

The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday by the John J. Heldrich Center for Workforce Development at Rutgers University. That is a decline of 10 percent, even before taking inflation into account.

That’s a significant drop and again, it makes the argument that going to work for 4 years instead of college may have two benefits: 1) no college loan debt and 2) 4 year work history which would most likely see a salary or earnings well above the median starting salary for college students. And as might be expected, it is those college students who are graduates from liberal arts programs who are suffering most.

The choice of major is quite important. Certain majors had better luck finding a job that required a college degree, according to an analysis by Andrew M. Sum, an economist at Northeastern University, of 2009 Labor Department data for college graduates under 25.

Young graduates who majored in education and teaching or engineering were most likely to find a job requiring a college degree, while area studies majors — those who majored in Latin American studies, for example — and humanities majors were least likely to do so. Among all recent education graduates, 71.1 percent were in jobs that required a college degree; of all area studies majors, the share was 44.7 percent.

So what sort of jobs are those who are degreed but not working in a job requiring a degree holding?

An analysis by The New York Times of Labor Department data about college graduates aged 25 to 34 found that the number of these workers employed in food service, restaurants and bars had risen 17 percent in 2009 from 2008, though the sample size was small. There were similar or bigger employment increases at gas stations and fuel dealers, food and alcohol stores, and taxi and limousine services.

Of course that has a ripple effect in which less-educated workers may be displaced.

“The less schooling you had, the more likely you were to get thrown out of the labor market altogether,” said Mr. Sum, noting that unemployment rates for high school graduates and dropouts are always much higher than those for college graduates. “There is complete displacement all the way down.”

Obviously the lesson here is education is still valuable, the question however is “how valuable”? Valuable enough to commit to the tremendous debt a college degree can bring? It is that sort of ROI that young people must begin making – especially those considering liberal arts programs. Assuming a desire by most who attend college to use their credentials to get a high paying job and secure a better future than foregoing such a program of study has to be under scrutiny by those in such a situation.

Opting to begin work out of high school vs. pursuing a college degree may become a real possibility. And naturally that will have another ripple effect. Colleges and universities will see decreased attendance which will in turn mean less revenue and possibly spur competition among them to attract students.

I actually see that as a beneficial effect, especially given the cost of higher education today, that may eventually make the ROI work somewhat better for potential college students. It is obvious the cost of higher education has risen much higher than any inflation rate. That’s a bubble that needs to be popped and popped rather quickly. Dropping enrollment because of a perception of not receiving the value for what is paid may be the motivator for higher education to cut their prices or suffer the consequences.

Emergency departments were most likely to have closed if they served large numbers of the poor, were at commercially operated hospitals, were in hospitals with skimpy profit margins or operated in highly competitive markets, the researchers found.

Sit there for a moment and let that all sink in. Got it? All ready to go? Now, let this sink in:

“This suggests market forces play a larger role in the distribution and availability of care” in the United States, Dr. Hsia said, especially emergency care. “We can’t expect the market to allocate critical resources like these in an equitable way.”

Really? That’s precisely what the market is doing here – Dr. Hsia just doesn’t like it’s method of allocation or the outcome, that’s all. So the hidden premise here is we (the collective) should allocate “critical resources” (emergency rooms and health care providers) differently than the market does (subsidize) and we’ll say a “market failure” made us do it, mkay?

That’s exactly the case Dr. Hsia is trying to build although it isn’t said outright. Market failure requires we (collective) pick up the slack (through government) and pay what is necessary (no matter how much it puts us in debt) to ensure “critical resources” (ERs and docs) are allocated “fairly” (as we think they should). This is also known as a form “central planning” which has always worked so well.

So that would mean unprofitable requiring emergency rooms stay open and we (collective) subsidizing them. BTW, anyone else find it ironic that there’s competition among hospitals keeping prices down to the point that some ERs are unprofitable, yet we’re consistently told that health care costs are spiraling out of control?

Anyway, as you recall the vaunted ObamaCare is supposed to take care of all this, right, because then even the poor will have insurance. And once they have insurance, they’ll never darken an ER again – except when they have a real live emergency. Well here’s a clue junior, the poor already have insurance – its called Medicaid. The problem isn’t lack of insurance, it is a lack of doctors. And it isn’t going to get better soon. Massachusetts has already demonstrated the problem:

When the Massachusetts Legislature made health insurance mandatory five years ago, supporters of the first-in-the-nation law hoped it would keep patients out of hospital emergency rooms.

Patients with insurance, the theory went, would have better access to internists, family practitioners, and pediatricians, lessening their reliance on emergency rooms for routine care.

There is more evidence today that it did not turn out that way.

Three-quarters of Massachusetts emergency room physicians who responded to a survey last month said the number of patients in their ERs climbed in the last year.

They cited ‘’physician shortages’’ along with a growing elderly population as the top two reasons why more patients come to ERs.

The law ‘’didn’t create an infrastructure,’’ said Dr. David John, chief of emergency care at Caritas Carney Hospital in Boston. “Doctors offices are full to capacity.’’

That’s right … MA’s single payer system is swamped. You can waive your magic wand and behold everyone has insurance, but you can’t waive your wand and make health care providers appear. And most doctors know that Medicaid is probably the worst paying insurance out there, not to mention the bureaucratic hassle that goes with it, so they limit their number of Medicaid patient – a prudent small business decision. Because after all, doctors are small businessmen and women. They employ staff, make payrolls, etc. So, just like hospitals that do the same thing, they’re concerned with – what’s that nasty word? Oh yeah, profit.

Nope, the market isn’t the problem here. It is doing precisely what markets should do. The outcome just isn’t the preferred one.

Oh, and under the category “never let reality stand in the way of your reality” or perhaps “facts, who needs facts, I have an agenda”, we find this.